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CME: Cattle Slaughter in W13 Lower Than Previous Week

On Friday USDA released the results of its Prospective Plantings and Grain Stocks surveys and the results were viewed as bearish for corn. USDA reported that on farm corn inventory was 5.131 billion bushels, 2.6 percent higher than a year ago while off farm inventory at 3.474 billion bushels was 10.7 percent lower.

The total inventory at 8.605 billion bushels was about 270 million bushels or 3.3 percent higher than analysts were expecting. This implies slower than expected demand for corn in Q2 and could affect expected carryout stocks when USDA updates its balance table in the next WASDE.

And in addition to having more corn in the bin than expected, USDA also noted that farmers intend to plant more acres with corn this spring.

USDA survey pegged the intended corn plantings at 92.792 million acres, 1.46 million acres more than the average of analyst estimates. Using a trend yield of 176 bushels per acre implies that the higher plantings would result in about 257 million more bushels of corn than was expected.

Much can change between now and the end of May when most corn will planted but, for now, the planting survey points to ample corn supplies in 2019-20, which is key for livestock and poultry production.

The table below outlines some ideas as to what the corn balance sheet may look like in the coming year. Needless to say such balance sheets are a dime a dozen at this point and will be revised quite substantially once planting gets under way and Mother Nature has her say.

Hog futures have pulled back in the last few sessions, in part because of the uncertainty surrounding the pace of US exports to China. The tweet from President Trump threatening to shut down the border with Mexico also did not help. Mexico is the biggest buyer of US pork and a disruption to trade could have significant impacts on US pork prices.

At this time, US pork producers continue to contend with a retaliatory 50 percent tariff in China (on top of regular tariffs faced by other countries) and a 20 percent retaliatory tariff in Mexico. The tariff in China continues to make product from other countries more competitive vs. US, at least in the short term.

The following chart currently shows the difference between US and Canadian ham prices in USD per pound terms. Canada pork product prices have increased dramatically in the last few weeks as China has become particularly active there. Despite the current premium of Canadian pork prices to US product it still is less than the 50 percent tariff on US pork in China.

Cattle slaughter last week was estimated by USDA to be 614,000 head, 2.7 percent lower than the previous week but 4 percent higher than a year ago. Based on preliminary USDA data we estimate that fed cattle slaughter last week was 480,000 head, 3.3 percent higher than a year ago.

Seasonally fed cattle slaughter increases during this time of year. The increase in slaughter and slow retail sales at the start of April seasonally put some pressure on the cutout. It is not unusual for the cutout to be lower in the first two weeks of April before moving higher in late April and May.

Fed cattle weights remain about 1.5 percent lower than a year ago, offsetting some of the slaughter gains.